Marathon Petroleum weighs diesel, chases gasoline

OREANDA-NEWS. April 29, 2016.  Current weakness for US diesel margins does not mean the end of the road for the fuel, Marathon Petroleum chief executive Gary Heminger said today.

The US independent refiner has planned expansions to diesel capacity, including a project over the next four years to add 65,000 b/d of finished distillates during integration work at its 475,000 b/d and 80,000 b/d refineries in Texas City, Texas.

That focus has turned upside down this year following a weak winter fuel demand season. Low margins contributed to a string of weak refining profits for the first quarter, including a \\$1mn profit at Marathon Petroleum for the quarter, which is down from \\$891mn in the same quarter last year.

"I think the entire industry is continuing to assess and be very careful in any incremental diesel projects," Heminger said in a conference call to discuss first quarter earnings. "But, as you know, you don't do one of these projects overnight."

Even before the weak winter season, late last year the company cancelled a distillates project at its 562,000 b/d refinery in Garyville, Louisiana, that it had planned to bring online in 2018, citing market conditions.

On-highway diesel in the first quarter was lower by 2pc compared to the same quarter last year, and large customers supplying trucking firms reported 2pc to 3pc drops on a same-store basis, the company said. Trucking companies still expect a solid second quarter and summer, Heminger said.

Swollen midcontinent inventory volumes that compounded a slow winter fuel season have returned to year-ago levels, according to Energy Information Administration (EIA) data. US Atlantic coast ultra-low sulfur diesel (ULSD) inventories were last week 20.5mn bl larger than the same week last year, according to the EIA.

Exports could soak up a still-large US Gulf coast stockpile, and a restart of drilling activity could rekindle demand, Heminger said.

Consumption was still solid compared to four years ago, he added.

"As you know, we have had tremendous growth in diesel the last three or four years, and I think some of that is just a leveling off of what the demand has been," Heminger said.

Marathon turned its immediate focus to gasoline. The refiner can shift roughly 10pc of its total output between gasoline and distillates, and had pushed all of that into the US summer driving fuel. Gasoline margins have turned sharply higher than diesel.

And the refiner was bullish on asphalt, encouraged by attractive margins for medium and heavy sour crude.

"The sour crudes have really started to improve here in the second quarter, and we see that as very positive going into the balance of the second quarter and (third quarter)," Heminger said.

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